Politics

A 220-page document entitled “Commission Staff Working Document: In-depth study of European Energy Security” is hardly designed to be a best-seller. Few outside Brussels will read the European Commission paper in full, which is a pity because it is an excellent piece of work. It also provides the basis for a series of proposals contained in an accompanying document, which if accepted and carried through could create a common energy policy for the EU comparable in scale, scope and cost to the Common Agricultural PolicyRead more

Photo by Sanjay Kanojia/AFP/Getty Images

Imagine being elected prime minister of a country with one and a quarter billion people, about 300m of whom live in absolute poverty. That is the challenge facing Narendra Modi in India. The hardest question must be to know where to start.

When it comes to energy Mr Modi’s first acts have been encouraging. He has set a high but achievable target for the installation of solar, on and off the grid, building on his experience in the state of Gujarat. He has also forced together three key ministries – covering power, coal and renewables – under a new minister, Piyush Goyal. He should probably have gone further and added petroleum and natural gas as well. Structural change in the complex bureaucracy of the Indian government matters a lot. Read more

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Many revolutions fail. They run out of ammunition or leaders or popular support. We hear a lot about the revolutions which succeed. History is written by the winners. But we hear much less about the failures – the promises of change which don’t materialise. Read more

For a long time it has looked as if the large-scale gas finds in the eastern Mediterranean would be stranded. The Leviathan field, located 80 miles off Haifa in Israel, which holds some 16tn cubic feet of gas was discovered five years ago but remains undeveloped and is not even completely defined. Israel has enough gas for its own needs from the smaller Tamar field, and politics and economics have combined to deter any of the wider development options. Now though a new option is emerging which makes development much more likely. The gas can be sent to Egypt. The move is rich in irony but it makes commercial and political sense. It could also mark an important moment of change in relationships across the region. Read more

A pro-Kremlin rally in St Petersburg. OLGA MALTSEVA/AFP/Getty Images

The conventional wisdom is simple – business and politics are two separate worlds, which should not mix. Corporate leaders should not be involved in anything that smacks of political activity. Business exists to make money not policy.

That is the mantra – and it is wrong. In two weeks time the St Petersburg International Economic Forum is due to meet. Business leaders should be there and should have the nerve to tell Vladimir Putin what he doesn’t want to hear.

The St Petersburg forum is President Putin’s answer to Davos – a prestige event designed to show that Russia is a key part of the global economy. As the FT reported last Friday, the US government does not want business leaders to attend. Valerie Jarrett, Mr Obama’s adviser, has been calling CEOs telling them not to go, as part of the process of demonstrating that after what has happened in Ukraine, Russia is isolated and friendless. Many are taking her “advice”. In Europe the position is more ambivalent. European sanctions on Russia are soft and the rhetoric from Berlin and Brussels even softer. Many European leaders seem to regard Ukraine as Russia’s sphere of influence. There is little appetite for bringing the country into either the EU or Nato. In contrast to Russia, Ukraine cannot afford to employ the lobbying skills of Gerhard Schröder and his ilk. Read more

Week by week Scotland seems to slip away. The reaction to the fiasco at the CBI demonstrates just how sensitive business is to involvement in politics. But the future of the United Kingdom is a matter on which business should have a strong and clear voice. In its absence the momentum behind the cause of independence will grow. Read more

The subtle redesign of Germany energy policy agreed by the government in Berlin last week sends some important signals not for the German market but for the rest of Europe. Far from damaging the renewables business the move could be the salvation of the sector. Other countries, the UK included would do well to adopt similar measures. This would be the most effective way of responding to the urgency expressed in the latest IPCC report. Read more

The first and easiest prediction arising from the continuing crisis in Ukraine and the deterioration of relations between Russia and the EU is that natural gas prices will rise. After all half the gas Europe imports from Russia comes through Ukraine. Very little of that supply can be replaced from other sources in the short term.

Russia has announced a sharp (44 per cent) increase in prices for the gas supplied to Ukraine – in part as a punishment for past unpaid bills. Surely Europe must be vulnerable to either a cut-off of supplies or a forced price rise? And yet in the real world actual gas prices have fallen over the past month and now stand at a three-year low. Is the market mad? Read more

The dispute over Ukraine has moved into a diplomatic phase and for the moment at least the prospect of a Russian advance into eastern Ukraine has receded. The consequences of what happened in the Crimea, however, continue to shape European policy making. The invasion provided a sharp reminder of Europe’s reliance on Russian gas – a degree of dependence which the EU will now reduce even if a settlement is agreed by the diplomats. It is quite possible that within two or three years European gas imports from Russia could be halved. Russia would be reduced to being one supplier among many in a world where gas-to-gas competition inexorably reduces prices. Read more

The full-scale competition review of the UK’s energy market which will be announced later this week is a challenge the industry should welcome. The inquiry will absorb a huge amount of time and effort over the next year but it offers the chance both for the industry to clear its name by removing the cloud of public suspicion over pricing policies and simultaneously for individual companies to examine their own strategic positioning in a market which is changing rapidly.

Of course, the competition review will add to uncertainty and will reinforce the reluctance to invest in new generating capacity, which is already evident, but the sense of doubt will exist in any case, and the review may help to produce some longer-term clarity. In the short term the government will have to find a new mechanism to ensure that supply is adequate to meet demand – and doing so with an expensive plan for emergency electricity supplies. But that is a separate issue from this fundamental analysis Read more

Energy is a business where success and failure are determined by technical skills and deep commercial expertise. That is true – up to a point. But consider the range of issues facing the world’s largest energy companies in 2014:

  • how to handle the deterioration of relations between Russia and the west;
  • how to build businesses in the world’s growth markets such as China and India;
  • how to manage the complexities of working in areas such as north Africa where physical security is being compromised by the presence of terrorists groups and the absence of effective governments;
  • how to manage the very different attitudes to energy in different markets such as the German opposition to nuclear or the French opposition to oil and gas which happens to come from shale rocks.

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George Osborne in his Budget speech on Wednesday talked, correctly, about US industrial energy costs being half those of the UK. The situation has deteriorated rapidly over the past five years. His proposed response is worth quoting directly:

“We need to cut our energy costs. We’re going to do this by investing in new sources of energy: new nuclear power, renewables, and a shale gas revolution.”

This must be a speechwriter’s joke. A line written in where the content bears absolutely no relationship to reality. New nuclear at £92.50 a megawatt hour will double the current wholesale price of electricity. New offshore wind on the Department of Energy & Climate Change’s own figures, which many feel are too low, will cost more than £120/Mwhr. These are not secret figures. They are well known in the Treasury, as is the risk of generating capacity failing to meet demand. There was no mention of that little problem. Read more

Applications closed last week for the chairmanship of the UK’s Environment Agency. Lord Smith of Finsbury, much criticised by some ministers during the recent floods, has not been sacked but has reached the end of his term. The appointment of a successor is important for the energy sector, and many others, but what happens next will also a test of whether public appointments in the UK have been politicised. Has meritocracy been abandoned? Read more

What happens now for the numerous companies, led by the oil majors, who have chosen to invest in Russia? The surprising answer may be that the short-term risks are less serious than the longer term prospects of disengagement as energy consumers, especially in Europe, reduce their dependence on a supplier they do not trust. Read more

Putin at the launch of the Russian section of a Russia-China oil pipeline in 2010. (Alexey Druzhinin/AFP/Getty)

As well as demonstrating the courage of Ukraine’s people, the one thing that the country’s political crisis of the past few weeks has made clear is the weakness of Russia. President Vladimir Putin likes to present his country as a reviving world power but it is trapped by its own dependence on oil and gas.

The threats and sabre-rattling will no doubt continue. Russia may be able, and should perhaps be allowed, to keep control of the Crimea and its black sea naval base at Sevastapol – though history does suggests that current events are simply sowing the seeds of another long-running conflict there, not least with the Tatars.

Beyond that, however, Moscow is in no position to confront Europe or even the new government in Kiev. The Ukrainians must not allow themselves to be provoked by an Emperor who has no clothes. Read more

A cold wind of economic reality is blowing in from the North Sea. The days in which offshore oil and gas production could provide easy revenue to support public spending are over. Development of the area’s remaining reserves will only thrive if the tax regime is completely rewritten, with the tax take drastically reduced. Politicians in London and Edinburgh should accept this reality rather than pretending that we still living in the glory days of the 1980s. Read more

Forget the evidence, feel the populism. That seems to be the motto of the UK secretary of state for energy, who has written to regulators suggesting that British Gas and perhaps other gas suppliers should be broken up because their profits are too high. There is nothing like picking on an enemy no one loves. With their refusal to be completely transparent on costs and pricing, the utilities have made themselves sitting ducks.

Never mind that there has been no competition inquiry (rejected by the Government despite support from EDF, who rightly argued that one was needed to clear the air). Never mind that the figures quoted by Mr Davey have been in the public domain for months, without triggering action by Ofgem. Never mind that Ofgem is a highly professional public body that knows what it is doing. And most of all, never mind the consequences. Read more

The fact that the Arab spring did not produce a sudden transformation of the Middle East and north Africa into fully functioning pluralist secular democracies is hardly surprising. Expectations on that front were very naive. But the wave of change is beginning to transform something else – the border lines which were drawn a hundred years ago as the spoils of the Ottoman Empire were divided among the allies. The process will be long and painful but out of it will come new countries. Outsiders including investors may not be able to determine the outcome but they cannot ignore what is happening or simply cling to the past. New realities have to be recognised and Libya is as good a place to start as any. Read more

I am glad I don’t live in eastern Europe and I can quite understand why against a good deal of economic logic Algirdas Butkevičius, the Lithuanian prime minister, is pushing very hard to force his country into the eurozone. The reason is the reassertion of Russian power across the region. The advance is not military but economic with energy issues to the fore. Comecon is being recreated. Read more

In a provocative paper published by the Institute of Economic Affairs just before Christmas Professor Colin Robinson, one of Britain’s most senior energy economists, says that the energy sector in the UK has been “effectively renationalised”. The language is strong and the case overstated. The claim is not true in any literal sense. Companies are not being taken over or expropriated by any Government agency. There has been no transfer of ownership. But behind the rhetoric is a real trend. There has been a transfer of effective control, the consequences of which are pushing large parts of the sector back under Government authority.

Professor Robinson’s paper focuses on the UK. But the trend is not restricted to Britain. In different ways a similar shift is taking place in Germany, Japan, and even to a limited extent in the US.

In what has always been a hybrid sector built on a mixture of public policy and private capital the balance of power is shifting year by year. In each of these countries and many others Government is now determining outcomes to a degree unseen since the wave of privatisation in the 1980s. Read more